TheCorporateCounsel.net

In mid-August, Liz shared Nasdaq’s proposed rule change to modify the delisting process for certain stocks that fail to regain compliance with the exchange’s bid price requirement. The Commission has since published the notice to solicit comments on the proposed rule change and will decide to approve or reject the changes within 45 to 90 days.

Bloomberg reports that AI and biotech startups are most at risk if the proposed rule change is approved. This Morrison Foerster alert describes the following potential consequences of delisting:

Involuntary delisting can lead to significant market disruptions, increased volatility, reduced access to capital, operational challenges, and damage to investor relations and market reputation. … Companies delisted from Nasdaq are generally relegated to trading on OTC markets. The specific OTC market depends on whether the company continues to file periodic reports and financial statements with the SEC. OTC markets typically have lower liquidity, are more volatile, and offer less visibility, often being perceived as a gray area in the capital markets that carries significant risk. Companies relegated to OTC markets usually cannot engage in traditional capital-raising activities without first securing a successful uplisting back with Nasdaq or the New York Stock Exchange, which generally involves a new listing application coupled with an underwritten offering.

[T]hese companies—or any company at risk of falling into penny stock status—should proactively consider strategic alternatives, such as a privatization, to avoid being quickly forced into delisting.

As Liz pointed out, this proposal comes on the heels of another proposal that would tighten the deficiency process for companies that effectuate a reverse stock split to regain a $1 bid price but, in doing so, trip up another continued listing requirement. Together, these proposals underscore how hard it can be when companies find themselves in a bid price deficiency and employ a reverse stock split. The stakes of missing the “sweet spot” — that is, the split ratio that gets the company into compliance for at least a year but doesn’t trip up other listing requirements — will be higher than ever.

– Meredith Ervine